Civil War and “Bills of Credit”

The Civil War and “Bills of Credit”

A CONSTITUTIONAL TERM OF ART FOR “PAPER MONEY”

“The immediate aftermath of the Civil War was a time of unprecedented legal flux, during which new doctrines were spun out to rationalize extreme positions adopted during the conflict. Nowhere was this more true than in the area of monetary law.”

The Civil War and “Bills of Credit” (A constitutional term of art for “paper money”)

The Civil War was over two generations removed from the ratification of the Constitution. Therefore few individuals active unpolitical and legal affairs at that time could be described as “contemporaries” of the Founding Fathers or the people who ratified the Constitution, who of all Americans were best situated historically to know what that document meant. (footnote 1) For example, in one of the Supreme Court’s most important cases on the subject of unconstitutional paper currency, one Justice pointed out that,

[t]he terms, “bills of credit,” are in themselves vague and general, and, at the present day, almost dismissed from our language. It is, then, only by resorting to the nomenclature of the day of the Constitution, that we can hope to get at the idea which the framers * * * attached to it.(footnote 2)

Perhaps amazingly, this observation was offered in 1830, a scant forty-two years after ratification of the Constitution, when men who had been young adults in 1788 were still alive and capable of remembering not only “the nomenclature of th[at] day” but also the actual “bills of credit”—such as the Continental Currency—which had then circulated throughout America. And, these possible witnesses aside, the pre-constitutional historical record more than adequately addressed the issue. (footnote 3)

The Civil War witnessed numerous innovations in government driven by the crisis of secession and insurrection, including the first national suspension of the writ of habeus corpus, (footnote 4) the first income tax levied by the United States, (footnote 5) and the first irredeemable legal-tender Treasury Notes (the so-called “Greenbacks” emitted by the United States. (footnote 6)

The immediate aftermath of the Civil War was a time of unprecedented legal flux, during which new doctrines were spun out to rationalize extreme positions adopted during the conflict. Nowhere was this more true than in the area of monetary law. (footnote7 ) Chief Justice Salmon Chase was the very man who as Secretary of the Treasury had lobbied for for the legal-tender United States Notes, and who Abraham Lincoln had appointed to the Supreme Court to uphold the notes’ constitutionality. (footnote 8) But even he contritely conceded in Hepburn v. Griswold, (footnote 9) the Supreme Court’s first decision on the unconstitutionality of the Greenbacks, that

“amid the tumult of the late civil war, and under the influence of apprehensions for the safety of the Republic almost universal, different views never before entertained by American statesmen or jurists, were adopted by many. The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority. * * * Many who doubted yielded their doubts; many who did not doubt were silent.” (footnote 10)

“the doctrines advanced in [Knox v. Lee, which reversed Hepburn and upheld the emission of the Greenbacks,] are not only in conflict with the teachings of all the statesmen and jurists of the country up to a recent period, and at variance with the uniform practice of the government for nearly three-quarters of a century, but * * * tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress.* * * Those limitations must be preserved, or our government will inevitably drift from the system established by our fathers into a vast centralized and consolidated government.” (footnote 12)

1862- The first congressional bill to unconstitutionally ‘Emit Bills of Credit’—the so-called ‘Greenback’— based upon ’emergency powers’ is signed into law.

Congress passed the legal-tender bill; and President Lincoln signed it into law. (footnote 1) The statute provided for the emission of:

United States notes, not bearing interest, payable to bearer, * * * [that] shall * * * be lawful money and a legal tender in payment of all debts, public and private, within the United States, except duties on imports and interest [upon bonds and notes, which shall be paid in coin]. And any hopders of said United States notes depositing any sum not less than fifty dollars * * * with the Treasurer of the United States * * * shall receive * * * an equal amount of bonds of the United States, * * * bearing interest * * * , and redeemable at the pleasure of the United States after five years, and payable twenty years from the date thereof. And such United States notes shall be received the same as coin, at their par value, in payment for any loans that may be hereafter sold or negotiated by the Secretary of the Treasury * * * . (footnote 2)

The question of the “Lincoln Greenback” constitutionality came before the Supreme Court. The Court’s amazingly ridiculous opinion was essentially, “Listen, this is what we had to do to win the war, we can’t repudiate it now”. So it was one of those “political decisions”. In fact, the Supreme Court could have repudiated the Lincoln Greenback by saying that, “The emission of Bills of Credit was unconstitutional, but we can’t unwind all the spending and transactions that went on because they cannot be traced. So it would be a judicial mess, but we will say that you can never do this again”. And the Court would have done something of great consequence in the future. Because the Court did recognize that this “emission of bills” was an extraordinary step. Even Salmon P. Chase recognized this because before the first case came to the Supreme Court, he was made Chief Justice of the Supreme Court. Here was the man who proposed this bill originally and supported it, as Secretary of the Treasury, who is now Chief Justice of the Supreme Court saying that the bill was unconstitutional! In the first case the Supreme Court heard on the matter (Hepburn v. Griswold, 1870), Chase wrote the opinion and admitted that what he did as Secretary of the Treasury was wrong – it was unconstitutional. So in the first Supreme Court case the “Lincoln Greenbacks” were declared unconstitutional.

Subsequent to Hepburn v. Griswold (1870) there was a change in the composition of the Supreme Court, politically as well as in the persons of the justices. Now Chase was in the minority when Knox v. Lee (1871) was heard. This time the Supreme Court went the other way, ruling that the “Lincoln Greenbacks” wereconstitutional. The argument was the Greenbacks were issued in an “emergency situation” – i.e., “There was a war, the survival of the Union was at stake and if the government hadn’t done this they would have lost the war. And thank goodness they did it!” If one reads between the lines the Court said it would never happen again because we would not have another Civil War. (footnote 1)

Footnotes:

1.) See generally The Purse and the Sword: Imminent Dangers of U.S. Economic and Homeland Security Policies, Heritage Research Institute, 2010,lecture presentation featuring Dr. Edwin Vieira. Also see Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution, (Chicago, Illinois R R Donnelly & Sons ., Inc., GoldMoney Foundation Special Edition [2011] of the Second Revised Edition , 2002) by Dr. Edwin Vieira, Jr., II Volumes.

Predictably, the Greenbacks soon significantly depreciated against gold: At the end of 1862, 1863, and 1864 $100 in gold exchanged for $128, $148, and $225 in paper respectively—the low point being July of 1864, when $100 in gold exchanged for $285 in Greenbacks. (footnote 13)

It’s important to note when these “bills of credit” came out— in the course of a major political crisis—The Civil War, which to the Political Class rationalizes the use of “emergency powers”. This is still the argument that is always made – “There is an emergency, so we have to do “X”, otherwise something terrible will happen” – people panic, politicians panic, and the next thing you know this “precedent” is on the books. In fact, this was the argument that was made for the emission of the Lincoln Greenbacks.

6.) Act of 25 February 1862, ch. 33, § 1, 12 Stat. 345, 345. See also Act 17 March 1862, ch. 45, § 2, 12 Stat. 370, 370; Act of 11 July 1862, ch. 142, § 1, 12 Stat. 532, 532; Act of 3 March 1863, ch. 73 § 2, 12 Stat.709, 710. Although in law “payable to bearer” , these notes were irredeemable at the time, because the government had suspended specie payments. The government later pledged “to make provision at the earliest practicable period for the redemption of the United States notes in coin”. Act of 18 March 1869, ch. 1, 16 Stat. 1, 1. And the notes were eventually made redeemable. Act of 14 January 1875, ch. 15, § 3, 18 Stat. 296, 296.